Real estate agency – relationships can be so complicated

In the State of California, before you even show your first home to a client, you are required to discuss the concept of agency relationship. It’s a great opportunity to explain representation and the different types of agency relationship. In practice, far to many agents wait until they are writing a purchase offer to explain this important concept.

Taken straight from the CAR form Disclosure Regarding Real Estate Agency Relationship

SELLER’S AGENT – The Seller’s agent under a listing agreement with the Seller acts as the agent for the Seller only.

BUYER’S AGENT – A selling agent can, with a Buyer’s consent, agree to act as agent for the Buyer only. In these situations, the agent is not the Seller’s agent, even if by agreement the agent may receive compensation for services rendered.

DUAL AGENCY – A real estate agent, either acting directly or through one or more associate licensees, can legally be the agent of both the Seller and the Buyer in a transaction, but only with the knowledge and consent of both the Seller and the Buyer.[hr]

In real estate there are a lot of words with many meanings. For purposes of this post, let’s agree that an agent refers to the broker of record, and an ‘agent’ refers to an individual. (and yes, a broker can also act as an ‘agent’ – but now my head has spun off and I need to go retrieve it) Most Sellers and Buyers refer to the person that they are working with as their ‘agent’. However, when defining agency relationship, the agent is the broker of record. For instance, I work as an associate licensee, and I ‘hang’ my license with Lyon Real Estate – the broker. In our office we also have brokers who also ‘hang’ their license under the broker of record, Lyon Real Estate.

The point to take away is this – the agent that is representing you is the broker.

Scenario #1 – I put Buyers in my car and we pull up to a listing and the broker is ABC Realty. If my Buyers make a purchase offer to the Seller, each party has their own agent. The seller is represented by ABC Realty, and my Buyer is represented by Lyon Real Estate.

Scenario #2 – I represent a Seller who has their property listed. The Seller is offerring a commision to sell the property. An ‘agent’ with ABC Realty brings an offer to purchase the property. The Seller is represented by Lyon Real Estate, and the Buyer will be represented by ABC Realty. The broker that has the property listed agrees to share the commission with the broker that brings the Buyer. Each party still has their own exclusive agent.

Scenario #3 – A Lyon Real Estate ‘agent’ brings a Buyer to my sellers property. Remember, my Seller is represented by Lyon Real Estate as well. Even though we have two seperate ‘agents’, the broker is the same – DUAL AGENCY. Each ‘agent’ still has a fiduciary responsibility to their respective clients. This is a very common practice and usually Sellers and Buyers feel protected.

Single ‘agent’ Dual Agency can be troubling. Sellers will wonder how one individual can properly serve the interests of two parties. While this is perfectly legal in the State of California, often Sellers will object to the practice. It is most often Sellers that object because they feel that a single ‘agent’ will not negotiate as aggressively if they are representing both parties. In many cases I would have to agree.

Perhaps even more unsettling is Buyers who think that they can negotiate a better deal by using the listing ‘agent’. In theory this sounds great, but in practice, the Buyer is left negotiating with an ‘agent’ that has a fiduciary responsibility to get the highest dollar for their client – the Seller. It is often best if each party has their own ‘agent’ representing them. In this way, they can feel that their best interests are being served.